JUDGMENT
PATHAK C.J. – The following question of law has been referred under section 256 of the Income-tax Act, 1961, hereinafter referred to as “the Act”, by the Income-tax Appellate Tribunal, Gauhati Bench, to the High Court for decision :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no obligation on the assessee to file the return of income under section 139(1) since the income returned was below the taxable limit, notwithstanding that the assessed income was chargeable to tax and on this ground to hold that no penalty was leviable under section 271(1)(a) ?”
The assessee is a firm. It was assessed as an unregistered firm for the assessment year 1963-64. For the assessment year 1966-67, the assessee was assessed as a registered firm. In 1963-64, the due date of filing the return under section 139(1) of the Act was June 30, 1963, but the assessee filed the return on December 10, 1964, showing an income of Rs. 2,878. Ultimately, the income was assessed at Rs. 27,807. In 1966-67, the due date of filing the return under section 139(1) of the Act was June 30, 1967, but the assessee filed the return on September 19, 1967, showing a total income of Rs. 14,817. Ultimately, the total income was assessed at Rs. 48,772. The Income-tax Officer held that there was delay in filing the returns and, therefore, he levied penalties of Rs. 3,874 for the assessment year 1963-64 and Rs. 9,873 for the assessment year 1966-67.
Against the penalty orders of the Income-tax Officer the assessee filed appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner disposed of the appeals for the two assessment years 1963-64 and 1966-67 along with the appeals for the assessment year 1964-65 and 1965-66 by a consolidated order dated May 14, 1971. The Appellate Assistant Commissioner found that since there was a return under section 139(4) of the Act, the requirements of section 139(1) were complied with and, therefore, the penalty provisions were not attracted and having so held, he set aside the penalty orders.
The department filed appeals against the order of the Appellate Assistant Commissioner before the Tribunal. The Tribunal held that the finding of the Appellate Assistant Commissioner that because the returns were filed under section 139(4) of the Act it fulfilled the requirements of section 139(1) even for the purposes of absolution from the penalty proceeding is not correct. Thus, the Tribunal found that the ground on which the penalty orders were set aside is not sustainable but, at the same time, the Tribunal upheld the order of cancellation of the penalty passed by the Appellate Assistant Commissioner on some other ground, namely, that in the assessment year 1963-64, the assessee submitted return as an unregistered firm and, therefore, the taxable limit was Rs. 6,000. The assessee, however, showed the total income at Rs. 2,878 and though the assessed income was Rs. 27,807, the figure swelled because of certain additions made to the trading account on percentage basis and also due to certain cash credits which the assessee could not prove. Similarly, for the assessment year 1966-67 the assessee filed the return as a registered firm and, therefore, the taxable limit was Rs. 25,000 and though the assessee showed the total income at Rs. 14,817, the total income assessed was Rs. 48,772 and in this case also the figure swelled because of certain additions in the trading account on percentage basis as well as certain cash credits which the assessee could not prove. The Tribunal found that the cash credits cannot be taken as evidence against the assessee that it had concealed income because there was nothing from the side of the department to show that these were incomes. The Tribunal also held that it had also not been found that the assessee had suppressed these amounts taken to be the income of the assessee from the return filed by it. The addition in the trading account is on percentage basis and for that also the assessee cannot be said to have committed any concealment of income. That being the position, so far as the assessee was concerned, the Tribunal found that when the returns were filed for the two assessment years in question, according to the assessee, the income was below the taxable limit. That being so, it had no obligation to submit return under section 139(1) of the Act. So, the question of delay in filing the return does not arise and, on that ground, the Tribunal ultimately upheld the order of the Appellate Assistant Commissioner.
A similar question arose in the case of Commissioner of Income-tax v. N. Khan and Brothers [1973] 92 ITR 338 (All), wherein the Allahabad High Court observed as follows (page 340) :
“Now, under section 139(1) a duty is cast upon every person to file a voluntary return if his income exceeds the maximum amount which is not chargeable to income-tax. The question arises as to which income is contemplated by this provision, the income which the assessee believes to be his income or which is finally assessed by the Income-tax Officer. It is clear that at the time when a person is required to file a voluntary return, no assessment has yet been made against him. He is thus to be guided by what he himself believes to be his income. It is possible and it happens very frequently that an assessee may not consider a particular item to be his income and yet the Income-tax Officer may hold otherwise. In such a case, if what he considers to be his income is less than the amount which is not chargeable to income-tax, he is not required to file a voluntary return even if the income finally assessed is more than the maximum amount which is not chargeable to income-tax. Of course, the belief of the assessee must be bona fide.”
We are in respectful agreement with the above observation of the Allahabad High Court. In the instant case we find that the income of the assessee crosses the non-taxable limit because of additions in the trading account on percentage basis and certain cash credits which could not be proved. As observed above, there is not finding that the assessee acted in any way mala fide in showing the income as it did in its returns. That being so, we hold that, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no obligation on the assessee to file the return of income under section 139(1) since the income return was below the taxable limit notwithstanding that the assessed income was chargeable to tax and on this ground to hold that no penalty was leviable under section 271(1)(a) of the Act.
In the result, the question of law referred is answered in the affirmative and against the department.
The reference is accordingly disposed of. There will be no order as to costs.
IBOTOMBI SINGH J. – I agree.
